A Precarious Accord

A series of summits, culminating with the inaugural meeting between the U.S. and North Korean leaders, provides an opportunity both to look back at the recent past and to reflect on what comes next. One key lesson from past summits is that the descent is more perilous than the ascent: The climb is exhausting, and the thrill of achieving great heights distracts from the tremendous effort yet required. There are multiple challenges emerging from the spring summits, but for the United States, the largest remains whether it will be possible to eliminate North Korea’s nuclear threat this time around. Has Kim Jong-un offered the irresistible concession of what could turn out to be but a portion of his nuclear capabilities in exchange for badly needed relief from economic and military pressure?

The world is in uncharted territory because of the two-step summit process: first, the inter-Korean summit on April 27 at the Demilitarized Zone (and the subsequent, less-publicized Moon-Kim summit a month later, on May 27); and second, the meeting between President Donald Trump and Chairman Kim in Singapore on June 12. But these developments represent a new chapter, a third significant attempt, in a long history of seeking diplomatic engagement with and nuclear disarmament of North Korea.

The first effort to stem North Korea’s then-embryonic nuclear weapon development came in the 1990s. The breakup of the Soviet Union prompted the United States to remove its remaining 100-or-so tactical nuclear weapons on the peninsula.¹ The two Koreas signed a non-aggression agreement in December 1991, followed the next month by a commitment “not to test, manufacture, produce, receive, possess, store, deploy, or use nuclear weapons; to use nuclear energy solely for peaceful purposes; and not to possess facilities for nuclear reprocessing and uranium enrichment.”² Rapprochement quickly gave way to the first nuclear crisis in 1993–1994, when North Korea balked at international inspection of its main plutonium nuclear reactor at Yongbyon. But diplomacy again prevailed in the form of the 1994 U.S.-DPRK Agreed Framework. A multilateral effort emerged on top of that bilateral deal, which committed to replacing North Korea’s graphite-moderated nuclear reactors with light-water reactors, strengthening the nuclear nonproliferation regime, and normalizing relations between Washington and Pyongyang.³

The Agreed Framework eventually faltered over the disclosure of a clandestine uranium-enrichment facility, and diplomacy gave way to heightened brinkmanship. A second attempt to find a diplomatic breakthrough with North Korea centered on Six-Party Talks among both Koreas, the United States, and China, as well as Japan and Russia. In the landmark Joint Declaration of September 19, 2005, North Korea pledged it was “committed to abandoning all nuclear weapons and existing nuclear programs.” For its part, the United States provided negative security guarantees, reaffirming its promise that it had no nuclear weapons on the Korean Peninsula and had “no intention to attack or invade the DPRK with nuclear or conventional weapons.”⁴ Only a year after the historic accord, North Korea conducted its first nuclear test. The Six-Party Talks managed to restate the 2005 commitments in a 2007 Joint Statement, but as with the Agreed Framework, the multilateral deal also failed to materialize.⁵

Since the beginning of the Trump administration, a strategy of “maximum pressure and engagement” helped to spur a diplomatic leap forward, both for peace and disarmament. Even if a new diplomatic framework eventually founders over tough issues of implementation and verification, the new vision of North-South peace achieved at the April 27 summit by Chairman of the DPRK State Affairs Commission Kim and President Moon significantly raised expectations, especially within democratic South Korea, for future normalization, if not unification.

The Moon-Kim and Trump-Kim summits—as well as the spate of other high-level meetings involving China, Japan, and Russia—have raised new opportunities and uncertainties. But whether the latest diplomatic opening is different this time is a question that can only be answered in the coming months and years. The postsummit environment remains long on promise but short on concrete achievements. Converting this summitry into a sustainable, effective diplomatic process that abolishes Pyongyang’s nuclear-weapon-related capabilities and their means of delivery is the study in diplomacy that this report seeks to analyze. The ultimate aim of convincing North Korea to swap nuclear weapons for peaceful economic development is an uphill battle.

The following recommendations for diplomatic and economic engagement with North Korea should help guide U.S. and other policymakers.

Maintain pressure but recognize reduced leverage once the process begins.

Maximum pressure is, for the moment, to be set aside so long as talks make progress. But unless sufficient pressure is applied throughout negotiations, North Korea will have every incentive to cheat and manipulate the process to buy time and leverage the particularities of its regime, such as power concentrated in one leader and an opaque system of governance. In the past, the temptation has always been for the United States and others to let up on pressure the moment a broad agreement is reached. Pressure alone may be insufficient, but diplomacy without persistent pressure would likely repeat the mistakes of the past. Sanctions should be peeled away slowly and in proportion to the level of genuine cooperation from North Korea on denuclearization. Even assuming full cooperation, some sanctions should remain, and the ability to reverse sanctions should be a routine part of policy planning. Similarly, it should be possible to reduce military tensions without reserving the ability to swiftly mobilize a strong deterrent and response force, or to bring back the threat of military options should Pyongyang abandon its commitments.

Although the Moon and Trump administrations successfully stuck to the same strategy prior to the summits, the expectations raised at the Panmunjom summit put the onus on the United States to begin relieving pressure on North Korea. Still, the Trump administration should have an ambitious list of Chinese entities to sanction should diplomacy collapse. But Xi’s embrace of Kim in Beijing in late March and again in early May suggests that, if he has not already begun to do so, he will prioritize providing North Korea with carrots to continue engaging well before the United States would prefer.

Match concessions and sanctions relief to the importance of specific North Korean actions.

The pragmatic way forward would be to calibrate big concessions from North Korea with larger rewards, to include some relief from sanctions. Smaller concessions should receive smaller rewards in the form of confidence-building measures, exchanges, and investments that cannot be converted into support for North Korea’s military programs, should the search for a sustainable diplomatic framework fail. For instance, there is a concern that some potential investments in North Korea could provide dual-use technologies that could enhance Pyongyang’s clandestine military programs; investments should be vetted for such unintended consequences. Action-for-action is still a sensible principle on which to proceed. But as for its implementation, this means that only genuinely significant actions by North Korea deserve significant rewards. If North Korea does allow international verification of its full nuclear inventory, and move within the next two years or less to dismantle key elements of the nuclear and missile programs, then sanctions should remain in place and major investments should be held in abeyance.

Demand full disclosure of North Korea’s nuclear dossier and urge North Korea to accept the International Atomic Energy Agency (IAEA) Additional Protocol.

Ensuring North Korean disclosure and maximum verification towards complete, verifiable, irreversible dismantlement (CVID) will be essential if a diplomatic breakthrough is to be sustained this time. While CVID will remain a long-term goal, the priority for sustainable diplomacy will require a timetable in which substantive steps for dismantlement occur within a relatively short window, probably by 2020, the final year of President Trump’s first term in office. Early in the negotiations, North Korea must divulge the extent of its nuclear holdings, from weapons and fissile material production to other facilities scattered throughout the country. Halfhearted measures—like attempting to sell the Yongbyon nuclear facility outside of Pyongyang once again, or destroying a nuclear testing site that was apparently damaged during the mammoth September 2017 explosion, for example—would not constitute anything close to full disclosure. (U.S. intelligence is aware of fissile material production facilities beyond those at Yongbyon.) A declaration from North Korea of its significant facilities and inventory would be a vital step toward testing Kim’s commitment to CVID.

Ensure constant international coordination to keep key actors working on a common strategy and implementation plan.

To keep all states committed to the same basic strategy, the Trump administration will need to enhance both bilateral and multilateral mechanisms while retaining control of the policy’s overarching trajectory. Reviving Six-Party Talks would be a sensible starting point for a multilateral framework. Four- or Five-Party Talks, by contrast, are both problematic propositions. The United States could imagine leaving Russia out, but China would likely then object to including Japan, a U.S. ally that Washington will not allow to be sidelined. In addition, active diplomacy in Northeast Asia will be required to ensure Washington is not excluded from important discussions, such as potential developments between China and Russia, or among China, South Korea, and Japan.

Build up effective channels of communication with North Korea.

Channels of communication with North Korea have never been adequate or robust, and, if nothing else, the current period of rapprochement allows new opportunities for routinizing contacts. The current absence of reliable, authoritative channels of communication with Kim Jong-un hampers diplomacy and could lead to crisis-level instability. The intelligence agencies of North Korea, South Korea, and the United States were invaluable in establishing the summit diplomacy. Those channels should be maintained going forward, given the sensitivity of many of the issues to be discussed and the location of people inside North Korea with knowledge about nuclear weapons. But if the process gains further momentum, expert dialogues should expand to include more senior military officers, top party officials, and scientists, as well as special envoys and diplomats. Permanent liaison offices in Pyongyang and Washington could provide a platform for expanded contacts.

Prepare for contingencies.

Unexpected success is a possibility that requires agile planning and diplomacy. Still, devastating failure remains more likely, and one means of enhancing the likelihood of this failure would be for a key actor such as South Korea to think that the diplomatic process, once begun, is more important than effective security outcomes. Both the ROK and China might find a flawed diplomatic agreement that diffuses tensions but leads to de facto acceptance of North Korea as a nuclear-weapon state preferable to the military tension of the fall of 2017. This is one of the key dangers of the current haste to reach dramatic diplomatic breakthroughs. It is essential that both Presidents Moon and Trump seek new ways to increase pressure even further if a deal is flawed. The volatility of the Korean Peninsula demands that the United States and the international community remain prepared for failure. Although there are no good military options, the collapse of negotiations and the deployment of North Korean nuclear-armed missiles are two of the scenarios most likely to make preventative war more appealing for the United States. Thinking through ways to return to the less lethal but still effective strategy of maximum pressure would be a sensible diplomatic contingency plan.

Reward substantial progress with sanctions relief and incorporate North Korea into the global trading system by sponsoring it to seek membership in the World Trade Organization.

China’s enforcement of sanctions from the fall of 2017 through early 2018 slashed North Korea’s abilities to export any significant quantities of its most important goods. But North Korea’s foreign trade situation was neither sustainable nor secure even before these sanctions. As such, removing economic sanctions alone will not be enough: For North Korea to diversify its trade and make it more sustainable, it needs to be integrated into the international trading system. The international community should consider, at the appropriate time, sponsoring North Korea for World Trade Organization (WTO) membership as an inducement. This would be a lengthy process, but it would produce salutary effects along the way. WTO membership would be crucial to North Korea’s aspiration to join the global economy and would both increase and diversify its foreign trade. Membership would also require the country to strengthen its capacity for monitoring and gathering statistics on its economy, a task with which the United States, South Korea, and the U.N. should stand ready to assist. The WTO would also require that North Korea undertake a wide range of economic reforms in both micro- and macroeconomic management, and free up its own system for foreign trade to allow freer competition for domestic actors. Here, too, the United States, South Korea, and other parties involved should stand ready to help North Korea with capacity building for such reforms.

Assist North Korea’s agricultural reforms.

The North Korean regime has yet to announce any broad, sweeping agricultural reforms along the lines of what China implemented in the 1970s. Within the international community, China would likely be open to supporting North Korea with expertise in farming reform, having itself gone from a collectivist, socialist system similar to North Korea’s in the late 1970s to a more market-based system by the early 1980s. A possible material inducement could include a limited supply of machine tools and other equipment. Such support must be tied to North Korean reforms of the ownership structure of land and agricultural production. In the long run, its farmers must be able to privately own the land they work, but in the more immediate term, any support for North Korean agriculture should be given only as the country takes tangible steps toward letting farmers dispose of their full production and toward levying taxes on them as regular producers in a market-based system.

Assist North Korean authorities in constructing a functioning monetary system.

North Korea’s monetary system is deeply fragmented, fragile, and dysfunctional. Many North Koreans hold whatever savings they have in foreign currencies such as the RMB or U.S. dollar, rather than in the North Korean won. The United States, South Korea, and other parties involved should offer Pyongyang assistance for capacity-building—training to North Koreans on central bank management and macroeconomic data collection, for example—as a carrot in the diplomatic process. North Korean capacity to implement policy and monitor the stability of its currency might be more robust than many believe. But the country’s monetary system is still lacking in many respects, as evidenced by the relatively low credibility of the won and the public’s preference for saving in foreign currency.

Facilitate and enable North Korea’s special economic zones (SEZs) to seek foreign investments, but do it the right way.

The North Korean predilection for SEZs, or special economic zones, dates back to the late 1980s. Only in recent years, however, has the government adopted laws and regulations that hold up to international standards. Potential investors still face overwhelming political and commercial risks. North Korea lacks a judicial environment that investors can trust, and it also largely lacks the sort of infrastructure required to support commercial success for foreign investors. Above all, the tensions around North Korea’s nuclear program make most investors shudder at the very thought of taking their factories to the country. That said, SEZs remain part of North Korea’s economic strategy: Kim Jong-un designated over a dozen new areas as SEZs in 2013 and 2014. The North Korean preference for SEZs is hardly surprising. In theory, they allow the regime to reap the benefits of foreign investment without risking unwanted foreign social and political influences. Indeed, Thae Yong-ho, a former North Korean high-level diplomat, said in an interview in May 2018 that Kim Jong-un hopes to use the SEZ-model to gain revenue from tourism and foreign manufacturing while keeping economic reforms isolated from the rest of North Korean society.

With the right form of engagement and incentives, this need not be the case. If done right, SEZs can provide a starting point for institutional change in the economy, allowing the government to experiment with economic policy changes on a smaller scale before implementing them on a broader, systemic scale.

Support judicial reform for a sound institutional environment.

In many realms, North Korea’s judicial system only exists nominally, and no individuals or businesses are afforded the right of due process. North Korea’s judicial system will eventually require a full-scale overhaul. But for the purposes of attracting foreign investments and spurring domestic economic activity, a few specific measures would go a long way. For foreign investments, the laws that exist on the books contain several key tenets for incentives and protections, such as land use and transfer rights, property rights for buildings, managerial discretion in production, hiring and wage setting, among other issues.⁶ But for foreign investors to be able to trust that those laws will be enforced, North Korea would need to allow for international commercial arbitration; and when the first cases arise, it would need to be able to show that its courts rule impartially in cases between national entities and international investors. Chinese and other international businesspeople with experience in North Korea have often been cheated on contracts and deals; North Korea must take concrete measures to change this reputation. Domestically, the state must codify and formalize the market system to a greater extent, enact protections for private property, and create transparent laws to guide the increasingly vibrant market sector. Here, a wide range of actors within the international community should stand ready to help with broad reforms of the North Korean judiciary, to assist in the creation of organs for oversight and judicial independence.

Help create a functioning financial sector.

North Korea largely lacks a financial sector in the conventional sense. In the past few years, the country has seen a modest growth of financial services, such as debit cards and ATMs, but this has not translated into any significant or widespread use by the public. Indeed, much of this growth is exclusively targeted at tourists and other foreigners in the country, rather than at North Korea’s own population. This dynamic is a major stumbling block for any economic progress. With the growth of the market economy, the so-called donju—a nascent, urban, entrepreneurial middle class—has risen to become a relatively wealthy social class, with a significant amount of funds to invest but no real options for placing their money, since no commercial banking sector exists. One of the main reasons for the boom in construction in North Korea over the past few years is that it is one of few sectors where citizens can invest their money; even real estate investment cannot be done in a judicially safe or transparent manner. For any substantial and sustainable economic growth to take hold, North Korea needs a financial sector that can mobilize both domestic and foreign resources to spur development in sectors such as industry, agriculture, and other parts of the real economy.

Whether change comes quickly or slowly on the peninsula, these guidelines can help inform U.S. and other decisionmakers as to how to move forward with peace, disarmament, and economic development. While the recommendations are focused on the two Koreas, there is no doubt that a significant shift in relations between the two Koreas as well as between North Korea and the world would bring profound change to all of Northeast Asia. To ensure the verification of commitments and the preservation of a strong alliance, diplomacy will remain a vital instrument in managing the North Korea issue.